TIA Section A - Odomirok 8-9 Flashcards

1
Q

Underwriting Income formula:

A

Earned Premium - Loss & LAE Incurred - Other Underwriting Expenses Incurred

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2
Q

List some factors that can be used to allocate expenses:

A

Premium, claim count or headcount

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3
Q

List some problems that may arise if expenses are not accurately allocated:

A
  • distorted profitability measures
  • inefficient allocation of resources
  • anti-selection
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4
Q

The Exhibit of Net Investment Income divides the investment income from bonds into:

A
  • Interest received during the year
  • Interest due & accrued
  • Current year’s amortization/ accretion
  • Interest paid for accrued interest on dividends
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5
Q

Describe interest paid for accrued interest on dividends

A

If insurer purchases a bond between coupons, it must pay the seller for the portion of the next coupon payment earned by the seller.

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6
Q

Why is Amortization or accretion of bonds required

A

The coupon rate is different to the market interest rate at the time the bond purchased. The amortization produces an amortized cost equal to the face value at maturity.

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7
Q

Formula to derive realized gain when bond is sold:

A

Amount received - adjusted carrying value

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8
Q

Define redeemable preferred stock:

A

Preferred stock that is redeemable at the option of the issuer at a specified maturity date, or after a specified period of notice, for a specified price

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9
Q

Definite perpetual preferred stock:

A

Preferred stock with no maturity date (i.e., can not be redeemed by the issuer)

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10
Q

How can a derivative qualify to be a “highly effective” hedge:

A

If the insurer can demonstrate that a derivative has significantly reduced a particular risk exposure

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11
Q

Describe hedge accounting treatment:

A

The derivative receives the same accounting treatment as the hedged asset

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12
Q

How are derivatives that do not qualify for the hedge accounting treated:

A

Market-to-market accounting (any changes in fair value are recorded as unrealized gains)

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13
Q

2 types of investment guidelines that are permitted by the NAIC Model Investment Law:

A
  1. Defined Limits: quantitative limits
  2. Prudent Person: a principles based approach, which enables the insurer to develop its own guidelines
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14
Q

List some components of Other Income:

A
  • Net Gain from Agents’ or Premium Balances Charged Off
  • Finance & Service Charges not included in Premiums
  • Aggregate Write-ins for Miscellaneous Income
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15
Q

Examples of Aggregate Write-ins for Miscellaneous Income

A

Gain on sale of equipment
Retroactive Reinsurance gain,
Gain on Foreign Exchange
Corporate Expenses
Fines & penalties

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16
Q

Equation to derive Current Year’s surplus from prior value:

A

= Prior Years Surplus + Current Years Net Income + Other Surplus Changes + Additional Capital Contributions - Stockholder Dividends

17
Q

Describe accounting treatment when stocks are issued:

A
  • The amount collected associated with the par value is recorded as paid in capital
  • The excess is paid-in surplus